Why Is Complete Enrollment Important To NeoStem Investors?

To my surprise, shares of NeoStem (NBS) fell 1% on Monday after the company announced that it had completed enrollment in its Phase 2 AMR-001 trial in the preservation of heart function after a severe heart attack. This is a major catalyst for the company, as it signals that all-important data is near. However, the stock performance tells another story, one of caution and uncertainty, but this fact, coupled with four additional reasons provides me with even more reasons to be bullish.

Complete enrollment finally announced

This announcement of complete enrollment was a catalyst itself, as it signals that final data readout will be six to eight months later. With most biotechs, we see some level of appreciation in the months before data. NeoStem is no different, and with data expected in the third-quarter of 2014, it's likely that NeoStem sees its stock appreciate nicely in the coming months.

With that said, it is very surprising that shares did not trade higher following the announcement.

NeoStem not only has good Phase 1 data, but we've also seen strong data from its peer Baxter (NYSE:BAX), which is developing a very similar product. Thus, the only reason I can think of regarding NeoStem's post-announcement performance is that investors are still skeptical due to results from the likes of CADUCEUS. Yet, I remain highly encouraged looking ahead, and there are four specific reasons.

Why Should Investors Feel Good About Upcoming Data?

#1 Known Data is Solid!

AMR-001 is a cell therapy product comprised of autologous bone-marrow-derived CD34+/CXCR4+ cells. These cells are then used by NeoStem to treat and repair damaged heart muscles following a heart attack.

CD34+ cells are often called the "workhorse of regeneration", as the regenerative abilities of these cells are often unquestioned. However, NeoStem's chief problem with AMR-001 had been finding a threshold dose, or a number of cells where the product was most effective.

Last year, NeoStem found this threshold dose at 10 million cells, and when administered not one single patient had a deterioration in heart muscle function. This compared to a control group where doses of zero and five million cells were given, and in these patient populations approximately 30% to 40% saw a deterioration. Thus, the difference between zero to five and 10 million cells is without question significant, and it is this reason that investors should feel confident in NeoStem's opportunity with AMR-001.

#2 There's a lot to like with Baxter

Baxter is a $36 billion company with nearly $15 billion in annual sales. It has numerous FDA approved products, but one of its more promising clinical products is a CD34+ cell therapy that is being tested to treat chronic myocardial ischemia in a Phase 3, 400 patient study.

Essentially, NeoStem and Baxter are using the same cells, but Baxter is attempting to strengthen the heart while NeoStem repairs it. In Baxter's Phase 2 study, its product reached endpoints that had never before been met, including increased exercise capabilities while reducing angina episodes. Thus, Baxter proved that its CD34+ product worked, which should be a solid vote of confidence in favor of NeoStem's AMR-001.

#3 Dr. Losordo's on board

Back in August NeoStem hired Dr. Douglas Losordo, as its Chief Medical Officer (NYSE:CMO). This means that Dr. Losordo would be heading up the development of AMR-001, ensuring that all cells are administered correctly, research is done properly, and that AMR-001 has the best possible chance to succeed in clinical trials.

Now, you might wonder what makes him the best man for the job. The answer is that he was the developer of Baxter's Phase 3 CD34+ product, responsible for its clinical outcome, and might be the most knowledgeable person in regards to the development of these particular cells. As a NeoStem investor, I know that I feel more confident with Losordo on board.

#4 CADUCEUS is irrelevant

Speaking of Dr. Losordo, I actually spoke with him back in September regarding a negative Seeking Alpha piece and a study called CADUCEUS. Later, I used this CADUCEUS study as an example of why "Apples to Oranges" is not the best biotechnology investment strategy.

CADUCEUS was a study of heart attack patients who were given cells that did not improve the function of the heart. NeoStem bears have used the outcome of the study for a centerpiece of their short thesis, and while everyone is entitled to their own opinion, it's important to realize that CADUCEUS is absolutely meaningless as it relates to AMR-001.

Earlier this month I explained thoroughly why the two trials are incomparable, which include facts such as neither being used the same way; AMR-001 derived from bone marrow while CADUCEUS cells are derived from cardiac tissue; also, the fact that the cells were given at different times - NeoStem has since learned that days five to 14 are most crucial for post-heart attack regeneration. CADUCEUS was given a month later after heart damage was permanent.

Moreover, AMR-001 induces the coronary artery, while CADUCEUS was given through injection. CADUCEUS gave no information regarding potency or dose. Hence, doses were incomparable, but honestly, even if they were given at the same dose we're talking about two different cells with different functions. Therefore, no comparison is logical or relevant, and this should be a reason for optimism among bulls.

Final Thoughts

Unfortunately, we won't know for certain that AMR-001 is effective until data is presented in six to eight months. This fact is the nature of biotechnology: We can assess, use known information, but ultimately there is no way to know for certain. Therefore, investors must exercise risk versus reward to make their decisions.

In this case, NeoStem has enough cash for two years, meaning there is no fear of dilution prior to data. The company has a market cap of $165 million, but if AMR-001 is successful, it could earn peak sales in excess of $1.2 billion annually for this one indication. Therefore, NeoStem's price to AMR-001's peak sales potential is very low, thus implying very low downside risk. However, because of its valuation, a successful study also implies large upside if the trial is successful.

With that said, I am both highly encouraged by the four points presented, and also the several others that have not been discussed. For example, there have been other reports published regarding CD34+ cells in the last year, one from the European Heart Journal Advance Access that produced strong data when using AMR-001's threshold dose and administering schedule. Hence, all we can do right now is wait, but given the facts, I like NeoStem's chances of being a top market-performer in 2014, and consider the complete enrollment announcement to be very important to shareholders.

Disclosure: I am long NBS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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